Fuentes v Bondi Beachside Pty Ltd [2016] NSWSC 531 (29 April 2016)

Last Updated: 29 April 2016

Supreme Court New South Wales

Case Name:	Fuentes v Bondi Beachside Pty Ltd
Medium Neutral Citation:	[2016] NSWSC 531
Hearing Date(s):	3 March 2016
Decision Date:	29 April 2016
Jurisdiction:	Equity
Before:	White J
Decision:	Refer to para [56] of judgment.
Catchwords:	CONTRACT — Contract for the sale of land — Vendor’s consent required prior to purchaser assigning, novating or otherwise disposing of its interest in the agreement or the property — Sub-sale contract entered into without vendor’s consent — Vendor terminated contract for breach — Whether sub-sale a breach of contract – whether an essential breach – no evidence of vendor’s suffering damage – purchaser entitled to order for specific performance – vendor entitled to nominal damages
Legislation Cited:	Land Registration Act 2002 (UK)
Cases Cited:	Abbey National Building Society v Cann [1990] UKHL 3; [1991] 1 AC 56 Bell v General Accident Fire and Life Assurance Corpn Limited (1998) L & TR I Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242 Chang v Registrar of Titles [1976] HCA 1; (1976) 137 CLR 177 Church of England Building Society v Piskor [1954] Ch 553 Coventry Permanent Economic Building Society v Jones [1951] 1 All ER 901 Cuthbertson v Irving [1859] EngR 767; (1859) 4 H & N 742; 157 ER 1034 DKLR Holding Co (No. 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 Duke of Northumberland v Attorney General [1905] AC 406 GPT Re Limited v Lendlease Real Estate Investments Limited [2005] NSWSC 964; (2005) 12 BPR 23,217 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7; [1962] 2 QB 26 Kern Corporation Limited v Walter Reid Trading Pty Limited [1987] HCA 20; (1987) 163 CLR 164 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 Re Transphere Pty Ltd (1986) 5 NSWLR 309 Scott v Southern Pacific Mortgages Ltd [2014] UKSC 52; [2015] AC 385; [2015] 1 All ER 277 Shaw v Foster (1872) LR 5 HL 321 Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 Universal Permanent Building Society v Cook [1952] Ch 95 Woolwich Equitable Building Society v Marshall [1952] Ch 1 Ziel Nominees Pty Ltd v VACC Insurance Co Ltd (1975) 180 CLR 173
Texts Cited:	McGarry & Wade’s Law of Real Property, 5th ed N Hopkins “Priorities and sale and leaseback: A wrong question, much ado about nothing and a story of tails and dogs” [2014] 79 Conv 245 P Sparkes, “Reserving a Slice of Cake” [2015] 79 Conv 301
Category:	Principal judgment
Parties:	Jorge Bildo Saravia Fuentes (Plaintiff) Bondi Beachside Pty Ltd (Defendant)
Representation:	Counsel: J O’Sullivan (Plaintiff) S Epstein SC with E Whitby (Defendant) Solicitors: Derwent Perez Lawyers (Plaintiff) Baron & Associates (Defendant)
File Number(s):	2016/56305

JUDGMENT

1. HIS HONOUR: The plaintiff, Mr Jorge Fuentes, seeks an order for specific performance of a contract for the sale of land made between him and his wife, Regina Bueno Ros, as purchasers, and the defendant, Bondi Beachside Pty Ltd, as vendor. The contract was entered into on 8 September 2012. It was a contract for the sale and purchase of a unit in an apartment block to be constructed by the vendor in Campbell Parade, Bondi Beach. The contract price was $1,420,000 and a deposit of 10 per cent was paid on exchange. In the events which happened completion was due 14 days after the date the purchaser received written notification of registration of the draft strata plan and a copy of an occupation certificate in relation to the building. Clause 9 of the General Conditions provided:

“If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. ...”

2. Special condition 63 provided:

“63. Purchasers Assignment
63.1 The following provisions apply if the Purchaser wants to assign, novate or otherwise dispose of its interest in this Agreement or the Property before Completion.
63.2 The Purchaser may only assign, novate or otherwise dispose of its interest in this Agreement or the Property of [sic] it has obtained the Vendor’s prior written consent.
63.3 The Vendor will not withhold its consent to a request by the Purchaser under sub clause 2 hereof if before the transaction takes effect the Purchaser:-
(a) obtains the approval of the Vendor to the real estate agent which the Purchaser proposes to use or the Purchaser appoints the Vendor’s Agent to sell the Property;
(b) undertakes not to offer the Property for sale at a price which is less than:-
(i) the purchase price specified in this Agreement; or
(ii) the median price for similar properties in the Building then being offered for sale by the Vendor or the Vendor’s agent;
(c) advises the Vendor of the particulars of the transaction including the total consideration payable and the identity of the other party;
(d) includes in the agreement evidencing the transaction, the terms and conditions of this Agreement (with any necessary changes made);
(e) provides the Vendor with a copy of that agreement; and
(f) is not a [sic] breach of any clause of this Agreement.
63.4 The Purchaser acknowledges that if the Vendor consents to a request by the Purchaser to dispose of its interest in this Agreement or the Property, neither the Purchaser or [sic] any agent appointed by it will be entitled to erect or display advertisements for that sale on the Property or the Building without the prior written consent of the Vendor.
63.5 If the Purchaser is a proprietary corporation, a change in control in the shareholding of the company from that existing at the date of this Agreement is treated as an assignment and Clause 60 applies. A change in control occurs if a different person or group of persons acquires more than 50% of the shares giving a right to vote at general meetings of the corporation.
63.6 The Purchaser acknowledges that it will be liable for any duty pursuant to the Duties Act 1997 relating to any assignment, novation or disposal as contemplated in this Clause.”

3. On 25 November 2015 the vendor’s solicitor advised the purchasers that the draft strata plan had been registered. The purchasers were asked to contact the vendor’s solicitor to make arrangements for completion to take place on Wednesday, 16 December 2015.
4. On 14 December 2015 Mr Fuentes and Ms Ros entered into a contract to sell what was then identified as Lot 12 in Strata Plan 92043 to a Mr Blumenthal for $1,550,000. On 16 December 2015 their solicitor advised Gil Baron & Associates that their clients had exchanged contracts with a third party for the sale of the apartment and that that sale was scheduled to settle on 24 December, but the parties were aiming to settle earlier if possible. On the same day, the vendor’s solicitors wrote to the purchasers’ solicitor asserting that the purchasers were in breach of the contract and reserving the vendor’s rights, including a right to terminate the contract on the basis of the purchasers’ repudiation of it.
5. On 21 December 2015 the vendor’s solicitor asserted that the purchasers were in default of the contract and the vendor would not accept any booking confirmation for the settlement of the sale.
6. On 25 January 2016 the vendor’s solicitor served a purported notice of termination of the contract. The notice stated that the purchasers had breached clause 63 of the contract and the vendor gave notice that the contract was terminated and the deposit forfeited. It reserved its right to sue for breach of contract or to resell the property and claim and recover liquidated damages.
7. The purchasers disputed the validity of the notice of termination. These proceedings were commenced on 22 February 2016. Mr Fuentes was the sole plaintiff. He sought an order for specific performance. By way of cross-claim the vendors sought damages for breach of contract.
8. Ms Regina Ros who was a co-purchaser was not joined as a plaintiff in the proceedings. Her non-joinder was due to a breakdown of her marriage with Mr Fuentes that resulted in a settlement agreement having been reached between them under the terms of which she relinquished in favour of Mr Fuentes her rights to any proceeds from any future sale of the property. She resides in Mexico.
9. On the face of it, the failure of both purchasers to sue as plaintiffs creates a substantial obstacle to the making of an order for specific performance. However, the vendor took no issue with respect to the non-joinder of Ms Ros. It expressly disclaimed any point about the sufficiency of parties.
10. Three substantial issues arise. First, whether the contract of sub-sale made between the purchasers and their sub-purchaser, Mr Blumenthal, was a breach of clause 63 of the agreement between the vendor and the purchasers.
11. If so, secondly, whether the purchasers had failed to comply with the contract in an essential respect, or repudiated the contract, so as to justify the vendor’s serving the notice of termination.
12. Thirdly, if the purchasers breached clause 63, but the breach did not justify the vendor’s terminating the contract, whether there should be an inquiry as to the vendor’s claim for damages.
13. For the reasons which follow I have concluded that:

read as a whole, clause 63 prohibited a sub-sale of the property by the purchasers without the vendor’s consent and the purchasers were in breach of the clause;

the breach was not a breach of the contract of sale in an essential respect, nor a repudiation of the agreement and does not justify the refusal of an order for specific performance; and

the vendor is entitled to nominal damages, but has not shown that it has suffered any loss that would justify an inquiry as to damages.

First Issue: Breach of clause 63

14. The plaintiff submitted that the sub-sale to Mr Blumenthal was not an assignment, novation or other disposition of the purchasers’ interest in the agreement or in the property within the meaning of clause 63.1 and therefore clause 63 did not apply. The purchasers’ interest in the property (if any) was their interest in the agreement for the purchase of the property. They did not assign that agreement, nor was there a novation of that agreement. They say there was no disposition of their interest in the agreement. The plaintiff relied upon the decision of the United Kingdom Supreme Court in Scott v Southern Pacific Mortgages Ltd [2014] UKSC 52; [2015] AC 385; [2015] 1 All ER 277 where the Court denied that a purchaser could confer a proprietary interest in land on a third party prior to acquiring the legal estate (per Lord Collins at [71] and Lady Hale at [95]). If correct, the corollary would appear to be that a purchaser under an uncompleted contract for the sale of land does not have in equity a proprietary interest in the property. It is the hallmark of a proprietary interest, as distinct from a personal interest, that it can be disposed of.
15. The plaintiff also submitted that if the purchasers did have an equitable interest in the property that could be assigned or disposed of, the action of entering into a contract for the sub-sale of the land was not a disposition of that equitable interest. The contract for sub-sale imposed obligations on the purchasers. Any interest created in the sub-purchaser was an imposition on the purchasers’ equitable interest in the property, not a disposition of that interest.
16. The vendor submitted that “disposed” in clause 63.1 had a wide meaning and encompassed “every conceivable mode by which property can pass” (Duke of Northumberland v Attorney General [1905] AC 406 at 410-411 per Lord Macnaghten). The vendor also submitted that it was clear from the balance of clause 63, in particular sub-clauses 63.3 and 63.4, that a sub-sale by the purchasers was the very kind of transaction intended to be caught by the words of clause 63.1.

Could the purchasers confer a proprietary interest on the sub-purchaser?

17. Scott v Southern Pacific Mortgages Ltd concerned the interpretation of s 29 and Schedule 3 of the Land Registration Act 2002 (UK) which relevantly provided that registration of a registrable disposition of a registered estate that was made for valuable consideration had the effect of postponing any interest affecting the estate immediately before the disposition whose priority was not protected at the time of registration. An “overriding interest” whose priority was so protected included an interest belonging, at the time of the disposition, to a person in actual occupation subject to certain immaterial qualifications (at [39]).
18. The case concerned the priority between a mortgagee and a prior owner. The prior owner, Mrs Scott, had been induced by fraud to sell her property to a purchaser who promised that she would be entitled to remain in her home at a discounted rent. She was told that if she stayed for 10 years she would receive a lump sum. She was told that she could stay as long as she liked and that if she were to die the tenancy would be automatically transferred into her son’s name and he would receive the lump sum at the end of the 10-year period (at [14] and [15]). These terms were not incorporated in the contract for sale, nor in the lease that was issued to Mrs Scott on completion of the sale. She was given only a two-year lease (at [21]).
19. The purchaser used moneys borrowed on mortgage security to purchase the property. The mortgagee did not have notice of the true arrangements between the purchaser and vendor. Upon the purchaser’s default in paying moneys due under the mortgage the mortgagee sought to exercise its power of sale. The vendor claimed that her interest under her agreement with the purchaser was an overriding interest which had priority to that of the mortgagee.
20. The issue of priority did not depend upon the general law. Presumably, at common law, the mortgagee would have had priority because it was a bona fide purchaser of the legal estate for value without notice or, if it did not acquire the legal estate, because the vendor’s prior equity would be postponed to the subsequent equitable interest of the mortgagee as the vendor had armed the purchaser with the means of deceiving the mortgagee by not incorporating the true terms of her agreement in the contract for sale or in the lease she took.
21. The case concerned the effect of s 29 of the Land Registration Act 2002 (UK) and Schedule 3 to that Act. Those provisions so far as relevant were set out by Lord Collins at [39] and provided as follows:

“39 So far as is relevant the scheme of the 2002 Act (leaving aside the special provisions for leases of seven years or less, which do not now arise on this appeal) is as follows:
...
(5) Section 29 deals with the effect of registered dispositions and provides:
‘(1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.
‘(2) For the purposes of subsection (1), the priority of an interest is protected— (a) in any case, if the interest— (i) is a registered charge or the subject of a notice in the register, (ii) falls within any of the paragraphs of Schedule 3 ...’;
(6) Schedule 3 is headed ‘Unregistered interests which override registered dispositions,’ and paragraph 2 includes:
‘An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for—... (b) an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so; (c) an interest— (i) which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and (ii) of which the person to whom the disposition is made does not have actual knowledge at that time ...’”

22. The question was whether Mrs Scott, who was in actual occupation of the property, had an overriding interest to which the mortgagee was subject, notwithstanding registration of the mortgage. In Abbey National Building Society v Cann [1990] UKHL 3; [1991] 1 AC 56 the House of Lords had held that for a person to establish an overriding interest against a transferee or chargee, he or she had to be in actual occupation of the land at the date of completion of the transaction that effected the transfer or charge. Lord Collins summarised the holdings in Abbey National Building Society v Cann that were crucial to the appeal as follows:

“48 The other holdings are the crucial ones on this appeal, which are these: (1) where a purchaser relies on a bank or building society loan for the completion of a purchase, the transactions of acquiring the legal estate and granting the charge are one indivisible transaction; (2) George never acquired anything but an equity of redemption and there was no scintilla temporis during which the legal estate vested in him free of the charge and an estoppel affecting him could be ‘fed’ by the acquisition of the legal estate so as to become binding on, and take priority over the interest of, the chargee; and (3) consequently Mrs Cann could have no overriding interest arising from actual occupation on the day of completion. The vendor remained the proprietor until registration, but the charge was created on its execution: at p 80.”

23. Mrs Scott sought to distinguish Abbey National Building Society v Cann on the ground that from the time of exchange of contracts, by virtue of the oral assurances given by the purchaser, she had an equity in the property beyond and in addition to her then registered freehold estate; and that this was an equitable proprietary interest and not a mere personal equity because from the exchange of contracts the purchaser had a proprietary right from which it could and did confer a proprietary interest on her. That interest arose before completion and she was at all relevant times in occupation (at [27]). Lord Collins observed:

“53 Logically the first question on this appeal is whether the purchasers were in a position at the date of exchange of contracts to confer equitable proprietary rights on the vendors, as opposed to personal rights only. The question whether the analysis in Cann [1990] UKHL 3; [1991] 1 AC 56 applies where the equitable interest of the occupier arises on exchange of contracts only comes into play if the vendors acquired proprietary rights at that time.
54 It was the second question which exercised the courts below, and they decided that the analysis in Cann did apply where the equitable interest of the occupier arises on exchange of contracts.”

24. His Lordship then re-characterised the question as being “... whether a purchaser, prior to acquisition of the legal estate, can grant equitable rights of a proprietary character, as opposed to personal rights against the purchaser” (at [60]). His Lordship said that whilst it has frequently been said that a purchaser of land obtains rights akin to ownership that can be described as proprietary interests for some purposes, it did not follow that a purchaser has a proprietary interest for all purposes (at [65]). His Lordship said (at [63] and [64]):

“63 In Shaw v Foster LR 5 HL 321, 338 Lord Cairns said that a purchaser had not only the right to devise the property (under the equitable doctrine of conversion) but also the right to alienate it or charge it, and Lord O'Hagan said (at p 350) that the purchaser's interest could be the subject of a charge or assignment, and that the sub-assignee or encumbrancer could enforce his rights against the original vendor.
64 But in the same case Lord Hatherley LC referred (at p 357) to the ‘fiction of equity which supposes the money to be paid away with one hand and the estate to be conveyed away with the other’, and in the High Court of Australia Deane J said:
‘it is both inaccurate and misleading to speak of the unpaid vendor under an uncompleted contract as a trustee for the purchaser ... the ordinary unpaid vendor of land is not a trustee of the land for the purchaser. Nor is it accurate to refer to such a vendor as a “trustee sub modo” unless the disarming mystique of the added Latin is treated as a warrant for essential misdescription’: Kern Corpn Ltd v Walter Reid Trading Pty Ltd [1987] HCA 20; (1987) 163 CLR 164, 192.
The High Court of Australia has said that the description of the vendor as a trustee tends to conceal the essentially contractual relationship which, rather than the relationship of trustee and beneficiary, governs the rights and duties of the parties: Chang v Registrar of Titles [1976] HCA 1; (1976) 137 CLR 177, 190; Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315, para 53.”

25. Although it is true that the High Court of Australia has said that the description of the vendor as trustee tends to conceal the essentially contractual relationship which governs the rights and duties of the parties, it has never before been doubted that a purchaser under a specifically enforceable contract has an equitable interest in the property commensurate with the right to equitable relief, albeit that the relationship between vendor and purchaser is not properly characterised as one of trustee and beneficiary prior to payment of the purchase price (e.g. Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 at 522-523; Kern Corporation Limited v Walter Reid Trading Pty Limited [1987] HCA 20; (1987) 163 CLR 164 at 191; Chang v Registrar of Titles [1976] HCA 1; (1976) 137 CLR 177 at 184-185; Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242 at 252-253). The position is comprehensively summarised by Emmett JA in Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2015] NSWCA 100; (2015) 89 NSWLR 237 at [98]- [105]).
26. Lord Collins referred to English cases that had considered the complex priority rules under the UK Land Registration Act, namely Coventry Permanent Economic Building Society v Jones [1951] 1 All ER 901, Universal Permanent Building Society v Cook [1952] Ch 95, Woolwich Equitable Building Society v Marshall [1952] Ch 1, Church of England Building Society v Piskor [1954] Ch 553 and Abbey National Building Society v Cann [1990] UKHL 3; [1991] 1 AC 56. His Lordship said:

“[71] But in each of these cases it was decided, or assumed, that, even if the tenant had equitable rights as against the purchaser, those rights would only become proprietary and capable of taking priority over a mortgage when they were 'fed' by the purchaser's acquisition of the legal estate. That is because where the proprietary right is claimed to be derived from the rights of a person who does not have the legal estate, then the right needs to be 'fed' by the acquisition of the legal estate before it can be asserted otherwise than personally. In Cuthbertson v Irving [1859] EngR 767; (1859) 4 H & N 742 at 754–755[1859] EngR 767; , (1859) 157 ER 1034 at 1039 Martin B said:
'There are some points in the law relating to estoppels which seem clear. First, when a lessor without any legal estate or title demises to another, the parties themselves are estopped from disputing the validity of the lease on that ground; in other words a tenant cannot deny his landlord's title, nor can the lessor dispute the validity of the lease. Secondly, where a lessor by deed grants a lease without title and subsequently acquires one, the estoppel is said to be fed, and the lease and reversion then take effect in interest and not by estoppel ...'
[72] In Bell v General Accident Fire & Life Assurance Corp Ltd [1998] 1 EGLR 69, Mummery LJ said (at 72):
'the juristic basis and the legal effect of the estoppel doctrine were authoritatively expounded in the Court of Exchequer by Martin B in Cuthbertson v Irving ... in terms applicable to this case ... The result is also consistent with the legal effect of the satellite doctrine of “feeding the estoppel” ... which applies when an interest in the land is acquired by the person deficient in title at the time of the grant from which the estoppel arose: “so that, as Hale put it, “by purchase of the land, that is turned into a lease in interest, which before was purely an estoppel””: see Holdsworth's History of English Law, vol VII, p 246.'”

27. Baroness Hale said (at [95]):

“95 I am reluctantly driven to agree that this appeal must fail for the reason given by Lord Collins of Mapesbury: the purchaser was not in a position either at the date of exchange of contracts or at any time up until completion of the purchase to confer equitable proprietary, as opposed to merely personal, rights on the vendor.”

28. Baroness Hale then considered the English decisions on the priority issues under the UK Land Registration Act in which a purchaser who had contracted to buy residential premises had granted a tenancy to an occupant who moved in before the contract was completed. She observed (at [109]) that:

“109 In each of these four cases, the interest of the purchaser between contract and completion was considered not ‘sufficient to support the lease’. Hence the question was whether there was a moment in time between the completion of the purchase and the grant of the mortgage – the so-called scintilla temporis – in which the purchaser acquired the unencumbered legal estate and so the estoppel was ‘fed’ before the purchaser disposed of it by way of mortgage.”

29. Her Ladyship then said (at [111]):

“... None of this scintilla temporis debate would have been necessary if the purchaser of land had been capable of creating a proprietary interest in that land before completion, which would be binding on a lender whose mortgage could only be granted on or after completion.”

30. To an Australian lawyer this is puzzling. In principle one might think that if one were analysing the vendor’s (Mrs Scott’s) proprietary rights at the time of exchange and prior to completion that her interest was that of legal owner and her contract with the purchaser and her undocumented arrangements with the purchaser conferred an equitable interest on the purchaser that was an imposition on her legal title, albeit only to the extent of the true arrangement between them. One might think that the purchaser did not confer a proprietary interest on the vendor. Rather the vendor’s legal title was subject to the purchaser’s equitable interest arising from a specifically enforceable agreement for the purchase of land. That was not how the question was approached. One commentator has observed:

“Difficulties with the Supreme Court’s analysis arise, however, when one steps back from the analysis of the case law on which the Supreme Court’s decision is focused. It is apparent that there are circumstances in which a purchaser can grant property rights prior to completion. This is the case where there is a sub-sale of the land. The sub-sale (like the original sale) is an estate contract which gives rise to a sub-trust of the purchaser’s interest. The sub-trust may be capable of being distinguished from other instances of the grant (or purported grant) of property rights on the basis that the trust is derivative of the interest held by the purchaser. However, its uncontentious existence—apparently overlooked by the Supreme Court in its discussion of whether purchasers can grant property rights—is perhaps illustrative of a gap in Lord Collins’ judgment. Lord Collins moves from general comments on the nature of the vendor-purchaser trust to a specific body of case law, culminating in Cann, involving the grant of property rights by purchasers to third parties. In doing so, it is suggested that the Supreme Court lost sight of the identity of Mrs Scott as the vendor in the transaction and therefore of the specific question that fell to be determined.
Lord Collins began by asking the right question: ‘whether the purchasers were in a position at the date of exchange of contracts to confer equitable proprietary rights on the vendors’. But he then conflated this with the wrong —broader—question: ‘whether a purchaser, prior to acquisition of the legal estate, can grant equitable rights of a proprietary character’. He proceeded to answer the wrong question—incorrectly—in the negative, and took this as being the answer to the right question. Baroness Hale, concurring on the point, followed the same error.” (Professor Hopkins “Priorities and sale and leaseback: A wrong question, much ado about nothing and a story of tails and dogs” [2014] 79 Conv 245 at 249.) (Footnotes omitted.)

31. Cuthbertson v Irving [1859] EngR 767; (1859) 4 H & N 742; 157 ER 1034 on which Lord Collins relied at [71] does not, with respect, support the proposition that where a proprietary right is claimed to be derived from the rights of a person who does not have the legal estate then the right needs to be fed by the acquisition of the legal estate before it can be asserted otherwise than personally. In Cuthbertson v Irving the original lessor (Biglands) had mortgaged the land and did not have the legal fee simple. He was in possession as mortgagor with an equity of redemption. He granted a lease to Irving and later assigned the reversion to Cuthbertson. Cuthbertson sued Irving for breach of the covenant to repair. Irving denied Cuthbertson’s title to sue. As Biglands did not have the legal fee simple, Cuthbertson did not have a statutory right to sue on the covenants made by Irving with Biglands. As between Biglands and Irving, Irving was estopped from denying his lessor’s title. (This was the first of the points made by Martin B quoted by Lord Collins at [71].) The issue in Cuthbertson v Irving was stated by Martin B (who gave the judgment of the Court of Exchequer Chamber) as being “... whether the assignee of a lessor in a lease by a deed, who has no estate in the land, has a reversion by estoppel against the lessee” (at 755). That question was answered in the affirmative (at 756-758). Martin B said (at 757-758):

“The note of Serjt. Williams to Walton v. Waterhouse, in 2 Saund. P. 418 a., is, ‘where the grantor or lessor has nothing in the land at the time of the grant or lease, and therefore no interest passes out of him to the grantee or lessee by the grant or lease, but the title begins by the estoppel which the deed creates between the parties, such estoppel runs with the land’ (and it is presumed with the reversion also), ‘into whose hands soever it comes, whether heir or assignee.’ We adopt this note as the right statement of the law, and in that the following propositions may be laid down: - First, if any estate or interest passes from the lessor, or the real title is shewn upon the face of the lease, there is no estoppel at all. Secondly, if the lessor have no title, and the lessee be evicted by him who has title paramount, the lessee can plead this and establish a defence to any action brought against him: Doe d. Higginbotham v. Barton [1840] EngR 310; (11 A. & E. 307); but, thirdly, so long as the lessee continues in possession under the lease, the law will not permit him to set up any defence founded upon the fact that the lessor ‘nil habuit in tenementis;’ and that upon the execution of the lease there is created in contemplation of law a reversion in fee simple by estoppel in the lessor, which passes by descent to his heir, and by purchase to an assignee or devisee. A pleading test may be applied. Had the plaintiff declared that Biglands was seised in fee and demised to the defendant and assigned his reversion to the plaintiff, the defendant could not effectually have traversed the assignment. Could he the seisin? The plaintiff would have made a prima facie case by shewing the lease to the defendant, and possession taken and enjoyed under it. The defendant could not have shewn any other estate in Biglands. He must therefore have said Biglands ‘nil habuit in tenementis.’ We are of opinion that the law will not permit him to do so. This state of law in reality tends to maintain right and justice, and the enforcement of the contracts which men enter into with each other (one of the great objects of all law); for so long as a lessee enjoys everything which his lease purports to grant, how does it concern him what the title of the lessor, or the heir or assignee of his lessor, really is. All that is required of him is, that having received the full consideration for the contract he has entered into, he should on his part perform it. For these reasons we think the verdict on the second issue ought to be entered for the plaintiff.”

32. Prima facie this is contrary to the conclusion in Scott that a purchaser cannot confer an equitable proprietary interest prior to acquiring the legal estate. In Cuthbertson v Irving the mortgagee had the legal ownership, but the mortgagor was able to confer a proprietary interest on the assignee which the assignee could enforce against the lessee, notwithstanding he did not have the legal estate. It is possible that in referring to the “legal estate” (at [71]) Lord Collins was not necessarily referring to legal ownership. In Bell v General Accident Fire and Life Assurance Corpn Limited (1998) L & TR I, Hutchinson LJ (at 9-10) cited McGarry & Wade’s Law of Real Property, 5th ed that at common law all titles to real property are relative and there can be simultaneous legal estates. A person in possession who, as against the owner, is a trespasser, can nonetheless sue third parties for trespass and nuisance. He has a legal estate in possession.
33. But Cuthbertson v Irving was not decided on the basis that the mortgagor, having only an equitable ownership interest, nonetheless had a legal estate in fee simple in possession which entitled him to grant a lease to Irving and assign the legal estate in possession to Cuthbertson. The case was decided on the contrary basis that Biglands did not have title to grant a lease, but Irving was estopped from denying the lack of title, and Cuthbertson, as Biglands’ assignee, was entitled to the benefit of the estoppel.
34. Neither Cuthbertson v Irving, nor Bell v General Accident Fire & Life Assurance Corporation Limited held that it is only where a person having an equitable proprietary interest acquires the legal estate that an assignee from that person can assert a proprietary interest. In my respectful view, that is tantamount to denying the first person’s proprietary interest. It is a hallmark of a proprietary interest that it can be assigned or otherwise disposed of.
35. In Shaw v Foster (1872) LR 5 HL 321 the House of Lords regarded it as axiomatic that a purchaser under an uncompleted contract for sale could assign his interest. The question was whether the notice received by the vendor was sufficient to put it on notice of the assignment (per Lord Chelmsford at 336-337, Lord Cairns at 338, Lord O’Hagan at 349, Lord Hatherley LC at 356-357).
36. Professor Sparkes, commenting on the decision in Scott, has written:

“Hitherto, it has always been assumed that a contracting purchaser has an equitable interest in the property he or she is buying which can support a charge of the land. Lord Collins challenged this assumption in Scott, when he asked himself whether a purchaser has equitable rights of a proprietary character, or merely personal rights? This extraordinary question received the extraordinary (and unanimous) answer that the purchaser cannot. Whilst bending over backwards to help lenders, the Supreme Court has destroyed the proprietary character of many equitable securities.” (Sparkes, “Reserving a Slice of Cake” [2015] 79 Conv 301 at 307-308)

37. It is not the law in New South Wales that a purchaser under a specifically enforceable contract has no proprietary interest in the land prior to acquiring legal ownership. It is difficult to reconcile what was said in Scott with the established principle that a purchaser under an enforceable contract for sale has an insurable interest commensurate with the estate the vendor agreed to convey (Ziel Nominees Pty Ltd v VACC Insurance Co Ltd (1975) 180 CLR 173 at 175; Kern Corporation Ltd v Walter Reid Trading Pty Ltd at 180). It is difficult to reconcile the rules as to priorities between competing equitable interests, or between legal and equitable interests, with the apparent principle in Scott that a purchaser does not have rights other than personal rights and cannot confer a proprietary interest in land on a third party prior to acquiring the legal estate. It is also difficult to reconcile that principle with the equitable doctrine of conversion.
38. In Scott Baroness Hale said (at [122]) that:

“This case has been decided on the simple basis that a purchaser of land cannot create a proprietary interest in the land, which is capable of being an overriding interest, until his contract has been completed.”

39. In my view, Scott v Southern Pacific Mortgages Ltd should be treated only as authority on the complex provisions regarding overriding interests under the Land Registration Act 2002 (UK).
40. In the present case, the purchasers’ equitable interest in the land is an interest in property. It is a corollary of the purchasers’ interest being an interest in property that it is capable of being disposed of or dealt with, such as by assignment or charge. Even though it would be necessary for the purchasers to give a direction for the transfer of the legal estate to the sub-purchaser in order for the sub-purchaser to be entitled to be registered as the proprietor of the land, it does not follow that the purchasers could not make an immediate disposition of their interest. Clause 4.3 of the standard conditions of sale provided that:

“If the purchaser serves a form of transfer and the transferee is not the purchaser, the purchaser must give the vendor a direction signed by the purchaser personally for this form of transfer.”

41. This clause recognised that the purchasers could give a direction for the transfer of the land to another.
42. I do not accept the plaintiff’s submission that the purchasers could not dispose of their interest in the agreement or the property before completion because they had not then acquired the legal estate.
43. In any event, the parties contracted on the basis that the purchasers could dispose of their interest in the agreement or the property before completion and clause 63 has to be construed on the basis of that common assumption.

Did the purchasers dispose of their interest in the agreement or the property?

44. The purchasers did not assign their interest under the agreement. Nor was there a novation of the contract. Nor did they “dispose” of their interest in the contract or in the property in the sense of getting rid of, that is alienating, their interest. Their sub-contract with the sub-purchaser created rights in the sub-purchaser that was imposed on the purchasers’ interest in the property, not subtracted from it (DKLR Holding Co (No. 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 518-520; Re Transphere Pty Ltd (1986) 5 NSWLR 309 at 311; GPT Re Limited v Lendlease Real Estate Investments Limited [2005] NSWSC 964; (2005) 12 BPR 23,217 at [62]). However, if “dispose” is read in the wider sense of “deal with” then by entering into the sub-contract the purchasers did dispose of their interest in the agreement and the property by creating an interest in the sub-purchaser that was enforceable against them and requiring them either to give a direction under clause 4.3 for the transfer to be made to the sub-purchasers (and hence dealing with their interest under the agreement) or, after taking a transfer from the vendor, giving a transfer to the sub-purchaser, and hence dealing with their interest in the property.
45. Clause 63.3 contemplates that a sub-sale of the property is a matter that will fall within clause 63.1. Clause 63.3(a) provides that the vendor was not to withhold its consent to a request by the purchasers to assign, novate or otherwise dispose of its interest in the agreement or the property if, amongst other things, the purchasers obtained the approval of the vendor to the real estate agent which the purchasers proposed to use to sell the property. It is clear that a sale of the property by the purchasers, which could only be a sub-sale, falls within clause 63.3 and was assumed to be a transaction that would fall within clause 63.1 and 63.2. Such a sub-sale is not an assignment of the purchasers’ interest. The sub-purchaser cannot insist on the vendor’s transferring the property to him on tender of the balance of the purchase price due to the vendor. It is not an alienation of the purchasers’ interest. To complete the agreement for sub-sale the purchasers would be required to complete their agreement with the vendor. Nonetheless it was a disposition of their interest in the agreement or the property within the meaning of clause 63. Clause 63 provides its own dictionary by making it clear that a sub-sale amounts to such a disposition.

Second Issue: No breach of an essential term nor breach in an essential respect

46. The purchasers were in breach of clause 63 by not obtaining the vendor’s consent to the sub-sale.
47. Breach of special condition 63 only justified the vendor’s terminating the contract if the breach were a breach of the contract for sale in an essential respect (clause 9). There was no provision in the contract to the effect that clause 63 was an essential term.
48. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 the plurality (Gleeson CJ, Gummow, Heydon and Crennan JJ) endorsed the judgment of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7; [1962] 2 QB 26 at 69-70 that of some contractual terms it can be said that whether a breach of the term would give rise to a right by the innocent party to terminate the contract for breach will depend upon whether the breach is of such seriousness as to deprive the innocent party of substantially the whole benefit it was intended he should obtain from the contract (at [49]-[52]). Kirby J, who concurred in the result, whilst rejecting the task of differentiating terms of a contract into classes of conditions, intermediate or innominate terms, and warranties, accepted that a right to terminate arises in respect of the breach of an essential term, the breach of a non-essential term causing substantial loss or benefit, or repudiation in the sense of renunciation of the contract (at [114]).
49. Without descending into the debate on taxonomies, the critical question is whether the breach of special condition 63, which is not an essential term, substantially deprived the vendor of a substantial part of the benefit of the contract (Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd at 72; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd at [52]-[55]).
50. The purchasers’ breach of special condition 63 was not of that character. Had the vendor’s consent to the sub-sale been sought, the vendor would have been required to provide its consent, unless it did not approve of the real estate agent that the purchasers proposed to use to effect the sub-sale. The sub-sale was at a higher price than the purchase price specified in the agreement. If the vendor had not sold all of the development it could have had a legitimate interest in selling another unit in the development to the sub-purchaser, rather than being in competition with the purchasers for a sale of the unit. But the vendor would not have been entitled to refuse its consent to the sub-sale on that ground. (Nor did the vendor adduce evidence that it had not sold all of the units in the development.) The vendor’s interest in the contract was to receive the purchase price for the unit. The sub-sale did not affect that interest. The vendor was not substantially deprived of the benefit of the contract.

Repudiation

51. Nor did the purchasers repudiate their contract with the vendor by entering into the sub-sale. The purchasers did not renunciate the contract. The purchasers remained ready and willing to perform their substantial obligation, namely to pay the purchase price for the unit. Their breach of special condition 63 was not a repudiation of the contract.

Requirements for completion

52. Special condition 50.2 provided that the purchasers must ensure that a transferee of the property from the purchasers enter into a deed with the vendor in terms of clause 50 that incorporated such part of the contract for sale as was necessary that the vendor obtain the intended benefit of clause 50. Clause 50 specified the purchaser’s obligations in relation to the exercise of a vote at a meeting of the owners’ corporation. It provided that the purchaser must not make any claim because of “Designated Matters”. The “Designated Matters” included issues arising out of the management of the strata scheme. In the vendor’s solicitors letter of 25 November 2015 its solicitor stated that if the purchasers had sold the property in accordance with the contract, then the vendor required that the sub-purchaser enter into a deed of Designated Matters in accordance with the contract.
53. The sub-contract included a term requiring the sub-purchaser to enter into the requisite deed of Designated Matters. There is no reason to apprehend that the purchasers cannot comply with clause 50.2.
54. The purchasers’ breach of special condition 63 does not mean that the purchasers are not willing and able to complete the contract in accordance with its terms. That will no doubt include a direction that the vendor execute a transfer in favour of the sub-purchaser. The vendor is entitled to require that the sub-purchaser enter into a deed with the vendor in terms of clause 50.2. The plaintiff accepts that this is so.

Third Issue: Vendor’s claim for damages

55. The vendor is entitled to nominal damages for the purchasers’ breach of special condition 63. It sought a further hearing for the quantification of damages. But no evidence was adduced that the vendor suffered any damage as a result of the breach of special condition 63. In those circumstances no such enquiry is warranted.

Declarations and orders

56. For these reasons I make the following declaration and orders:

1. Declare that the plaintiff is entitled to have the contract dated 8 September 2012 for the sale of land from the defendants as vendors to the plaintiff and Regina Ros as purchasers for the property known as Apartment 213 Pacific Bondi Beach, 180-186 Campbell Parade, Bondi Beach, being Lot 12 in Strata Plan 92043 specifically performed and carried into effect.

2. Order that the defendant specifically perform and carry into effect the said contract.

3. Reserve the proceedings for further consideration and grant liberty to apply in relation to any issue that might arise in relation to the carrying into effect of order 2.

4. Judgment for the cross-claimant against the cross-defendant in the sum of $20.

5. Order that the cross-claim be otherwise dismissed.

57. Prima facie the defendant should pay the plaintiff’s costs of the proceedings, including the cross-claim, notwithstanding the award of nominal damages. I will hear the parties on costs.

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